Friday, November 30, 2018

New DOJ Policies for Prosecution of Entities and the Individuals Within Them Most Responsible (11/30/18)

Deputy Attorney General Rod Rosenstein announced yesterday important changes to Government policy on prosecuting corporations and individuals yesterday at a conference on the FCPA.  See DOJ announcement here.  I include below the key excerpts (lengthy) explaining the policy:
Under our revised policy, pursuing individuals responsible for wrongdoing will be a top priority in every corporate investigation. 
It is important to impose penalties on corporations that engage in misconduct. Cases against corporate entities allow us to recover fraudulent proceeds, reimburse victims, and deter future wrongdoing. Corporate-level resolutions also allow us to reward effective compliance programs and penalize companies that condone or ignore wrongdoing. 
But the deterrent impact on the individual people responsible for wrongdoing is sometimes attenuated in corporate prosecutions. Corporate cases often penalize innocent employees and shareholders without effectively punishing the human beings responsible for making corrupt decisions.  
The most effective deterrent to corporate criminal misconduct is identifying and punishing the people who committed the crimes.  So we revised our policy to make clear that absent extraordinary circumstances, a corporate resolution should not protect individuals from criminal liability. 
Our revised policy also makes clear that any company seeking cooperation credit in criminal cases must identify every individual who was substantially involved in or responsible for the criminal conduct.  
In response to concerns raised about the inefficiency of requiring companies to identify every employee involved regardless of relative culpability, however, we now make clear that investigations should not be delayed merely to collect information about individuals whose involvement was not substantial, and who are not likely to be prosecuted. 
We want to focus on the individuals who play significant roles in setting a company on a course of criminal conduct.  We want to know who authorized the misconduct, and what they knew about it. 
The notion that companies should be required to locate and report to the government every person involved in alleged misconduct in any way, regardless of their role, may sound reasonable. In fact, my own initial reaction was that it seemed like a great idea. But consider cases in which the government alleges that routine activities of many employees of a large corporation were part of an illegal scheme. 
When the government alleges violations that involved activities throughout the company over a long period of time, it is not practical to require the company to identify every employee who played any role in the conduct. That is particularly challenging when the company and the government want to resolve the matter even though they disagree about the scope of the misconduct. In fact, we learned that the policy was not strictly enforced in some cases because it would have impeded resolutions and wasted resources. Our policies need to work in the real world of limited investigative resources. 
Companies that want to cooperate in exchange for credit are encouraged to have full and frank discussions with prosecutors about how to gather the relevant facts.  If we find that a company is not operating in good faith to identify individuals who were substantially involved in or responsible for wrongdoing, we will not award any cooperation credit.  
Civil cases are different. The primary goal of affirmative civil enforcement cases is to recover money, and we have a responsibility to use the resources entrusted to us efficiently.  Based on the experience of our civil lawyers over the past three years, the “all or nothing” approach to cooperation introduced a few years ago was counterproductive in civil cases. When criminal liability is not at issue, our attorneys need flexibility to accept settlements that remedy the harm and deter future violations, so they can move on to other important cases. 
The idea that a company that engaged in a pattern of wrongdoing should always be required to admit the civil liability of every individual employee as well as the company is attractive in theory, but it proved to be inefficient and pointless in practice. Our civil litigators simply cannot take the time to pursue civil cases against every individual employee who may be liable for misconduct, and we cannot afford to delay corporate resolutions because a bureaucratic rule suggests that companies need to continue investigating until they identify all involved employees and reach an agreement with the government about their roles. 
Therefore, we are revising the policy to restore some of the discretion that civil attorneys traditionally exercised – with supervisory review.  
The most important aspect of our policy is that a company must identify all wrongdoing by senior officials, including members of senior management or the board of directors, if it wants to earn any credit for cooperating in a civil case. 
If a corporation wants to earn maximum credit, it must identify every individual person who was substantially involved in or responsible for the misconduct.  
When a company honestly did meaningfully assist the government’s investigation, our civil attorneys now have discretion to offer some credit even if the company does not qualify for maximum credit. When we allow only a binary choice –full credit or no credit – experience demonstrates that it delays the resolution of some cases while providing little or no benefit. 
In a civil False Claims Act case, for example, a company might make a voluntary disclosure and provide valuable assistance that justifies some credit even if the company is either unwilling to stipulate about which non-managerial employees are culpable, or eager to resolve the case without conducting a costly investigation to identify every individual who might face civil liability in theory, but in reality would not be sued personally. 
So our attorneys may reward cooperation that meaningfully assisted the government’s civil investigation, without the need to agree about every employee with potential individual liability.  
As with the “all or nothing” criminal policy, we understand that the civil policy was not strictly enforced in many cases. I prefer realistic internal guidance that allows our employees to reach just results while following the policy in good faith. 
I want to emphasize that our policy does not allow corporations to conceal wrongdoing by senior officials. To the contrary, it prohibits our attorneys from awarding any credit whatsoever to any corporation that conceals misconduct by members of senior management or the board of directors, or otherwise demonstrates a lack of good faith in its representations.  Companies caught hiding misconduct by senior leaders or failing to act in good faith will not be eligible for any credit.  
Other policy changes return discretion to our civil lawyers to resolve each case consistent with relevant facts and circumstances.  Department attorneys are permitted to negotiate civil releases for individuals who do not warrant additional investigation in corporate civil settlement agreements, again with appropriate supervisory approval.  
And our attorneys once again are permitted to consider an individual’s ability to pay in deciding whether to pursue a civil judgment.  We generally do not want attorneys to spend time pursuing civil litigation that is unlikely to yield any benefit; not while other worthy cases are competing for our attention. 
These commonsense reforms restore to our attorneys some of the discretion they previously exercised in civil cases; the same discretion routinely exercised by private lawyers and clients and by government agencies responsible for using their resources most efficiently to achieve their enforcement mission.  
Returning discretion to Department attorneys is consistent with our commitment to hold individuals accountable in every appropriate case, using both our civil and criminal enforcement authorities. The Department will vigorously and diligently pursue enforcement actions against individuals in every case where it is justified by the facts. If it is not justified, we will move on. 
Let me conclude by acknowledging that most companies want to do the right thing.  Companies that self-report, cooperate, and remediate the harm they caused will be rewarded. Companies that condone or ignore misconduct will pay the price. 
These policy changes reflect a lot of deliberation and analysis by experienced government and private sector lawyers who understand the practical implications of our policies and how they sometimes help – but sometimes inhibit – efforts to achieve our goals. 
In summary, our corporate enforcement policies should encourage companies to implement improved compliance programs, to cooperate in our investigations, to resolve cases expeditiously, and to assist in identifying culpable individuals so that they also can be held accountable when appropriate. It is not always possible to achieve all of those goals, but the new policies strike a reasonable balance.

JAT Comments:

1.  The changes are reflected in various portions of the Justice Manual.  The links to the Justice Manual changes are at the bottom of the DOJ posting linked at the start of this blog.

2.  Examples of tax cases in which the new policies may be deployed are the abusive tax shelter offerings promoted by major accounting firms and law firms in the late 1990s and early 2000s.  Earlier versions of entity prosecution policies were deployed in prosecutions related to those shelters.  Those policies have now evolved.

3.  This seems to be a good policy balancing the need for enforcement, deterrence and wise use of limited resources.

4.  It seems to me that a policy that promotes the prosecution and civil liabilities for the major individuals involved in entity level crime is wise and appropriate.

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